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Creating Intellectual Property – an entrepreneurial necessity or luxury?

Soumitra Sharma
5th Apr 2011
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Soumitra Sharma
At the outset, it’s a pleasure to be writing this column for Your Story. Keeping in line with the ethos of this wonderful platform, this column will aim to demystify the “Venture Capital” perspective on investing by addressing critical questions that entrepreneurs face on a daily basis, and key aspects where even the most high-potential ideas and stellar teams tend to go wrong. Ultimately, the aim is to provide enough thought starters to entrepreneurs, which help them create more value for all stakeholders – the founders themselves, employees, investors, and the society at large.

What better topic to kick-start the series than the perennial issue technology entrepreneurs, in particular, face frequently – Is it really worth creating Intellectual Property? My prototype is ready – should I patent it? Is an Indian patent good enough or should I be filing a US patent as well? Is patenting the only option or can I get more forms of IP protection?

General awareness about IP is low in India, given a weak IP regime compared to global standards, and less focus on innovation in University curriculums. Most Indian entrepreneurs, especially seed stage or those who are relatively young, tend to be apprehensive about creating IP protection. The biggest factor seems to be cost, in addition to its perceived low utility. From a VC perspective, these apprehensions are nothing but misconceptions.

First things first, VCs love intellectual property. And the reason is simple – some of the key evaluation parameters VCs look at include innovation, differentiation and ability to create sustainable competitive advantage. Creating IP protection is the best way to provide tangibility to the innovativeness of a product or service, and create entry barriers around it. Given rigorous IP protection procedures, it’s also a great way for entrepreneurs to check the market landscape for similar offerings and potential competitors. Even though there are ways to work around patents and other IP, to a VC, it still gives great comfort about potential disruptiveness of the venture.

It’s also important to understand that IP doesn’t just mean patents. It’s a full spectrum of protection ranging from copyrights and trademarks to patents and trade secrets. A venture might fit in different categories, depending on what the core offering and business model is. Advice on which protection is the most suited is usually given by IP law firms, which brings me to my second point – cost. There is a range of Law Firms that advise on IP issues, which also includes small boutiques that specifically cater to startups and small businesses. These, in particular, operate on very competitive price points and are meant to suit smaller budgets of young ventures. The procedural costs for filing IP protection are not too high anyway, and startups can easily control the law firm fee by doing their research well and engaging firms that promise to deliver quality within their budget. It’s not uncommon to see individual young inventors, even with very limited earnings, filing patents via law firms. A founding team seeking VC money to build a US$ 100MN business in 5 years should have appetite to do the same.

Another key issue is the geography of filing. The idea is simple here – a venture needs IP protection in regions that are its major markets. Indian startups would typically go in for Indian IP protection but in several cases, a US patent or similar IP protection is also advisable, given excellent enforcement regimes in these regions. International IP also gives excellent credibility to the innovation and in today’s interconnected world, provides protection and entry barriers across global markets.

Finally, ideas are dime a dozen. Monetizing them by building businesses however, is an exceptional challenge. For VCs to look at a venture favorably, entrepreneurs themselves need to respect their innovation, and creating IP protection is the best way of doing that. Therefore, if you have created something that will change the world, create IP protection and ensure no one else does it!

Disclaimer

The views and opinions expressed in this column are strictly personal, and not those of any organization/institution the author is or has been a part of, nor is made in any official capacity of such organization/institution, unless explicitly stated otherwise. None of the information, views and opinions in the column should be construed as business or legal advice.

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